Fitch Ratings

Sri Lanka downgraded by one level to 'B+'; outlook negative: Fitch

ECONOMYNEXT - Fitch Ratings has downgraded Sri Lanka by one notch to 'B+' from 'BB-' with a negative outlook at the lower level, on falling foreign reserves, high debt maturities and lack of policy coherence.

Sri Lanka's sovereign rating is now four levels below the lowest investment grade rating.

Sri Lanka external liquidity ratio was too far below BB and even B rated countries, Fitch said.

"The Sri Lankan sovereign faces increased refinancing risks on account of high upcoming external debt maturities, the rating agency said.

"Further, the sovereign's external liquidity position remains strained, reflecting pressure on foreign exchange reserves.

"In Fitch's view, this partly reflects a weakening in policy coherence that increases the likelihood of Sri Lanka requiring external liquidity support from the IMF and other multilateral institutions."

The full rating commentary is reproduced below:

Fitch Downgrades Sri Lanka to 'B+'; Outlook Negative

Fitch Ratings-Hong Kong-29 February 2016: Fitch Ratings has downgraded Sri Lanka's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-'. A Negative Outlook has been assigned to the IDRs. The issue ratings on Sri Lanka's senior unsecured foreign- and local-currency bonds are also downgraded to 'B+' from 'BB-'. The Country Ceiling is downgraded to 'B+' from 'BB-' and the Short-Term Foreign-Currency IDR is affirmed at 'B'.

KEY RATING DRIVERS

The rating action reflects the following key rating drivers:

- Increasing refinancing risks. The Sri Lankan sovereign faces increased refinancing risks on account of high upcoming external debt maturities. Further, the sovereign's external liquidity position remains strained, reflecting pressure on foreign exchange reserves. In Fitch's view, this partly reflects a weakening in policy coherence that increases the likelihood of Sri Lanka requiring external liquidity support from the IMF and other multilateral institutions. Sri Lanka's external liquidity ratio, as measured by Fitch at the end of 2015, was 70.9%, which is far below the median of 'B'-rated peers' of 171.9% and the 'BB' median of 152.4%.

- Significant debt maturities. Sri Lanka faces significant debt maturities in 2016 amid the country's vulnerability to a shift in investor sentiment. Fitch estimates the sovereign's external debt service to be close to USD4bn for the rest of 2016, compared with FX reserves of USD6.3bn (end-January 2016). Sri Lanka's vulnerability to a shift in investor sentiment was evident when investors sold-off the equivalent of nearly USD2bn in local-currency government securities in 2015. A further outflow from treasury bills and treasury bonds, which account for about 31% of the country's FX reserves, could put more pressure on reserves. However, prevailing low oil prices will continue to support Sri Lanka's current-account deficit in the near term. Fitch expects the current-account deficit to remain manageable at about 3% of GDP over 2016-17.

- Weaker public finances. The deterioration in Sri Lanka's fiscal finances is driven partly by consistently low general government revenues. At an estimated 13% of GDP, Sri Lanka's gross general government revenues remain far below the 'B' median of 25.4% and the 'BB' median of 26%. The 2016 budget did little to address this issue directly and absent any significant fiscal consolidation, Fitch expects continued fiscal slippage over 2016-17. Sri Lanka's gross general government debt (GGGD) burden is estimated to have increased to more than 75% of GDP by the end of 2015, up from 71% at the end of 2014 and much higher than the 'B' median of 52% of GDP and 'BB' median of 43.6%.

  - Decline in foreign-exchange reserves. Fitch has revised downwards its forecast for foreign-exchange reserves, with reserve coverage of current external payments now forecast to decline to 2.9 months in 2016 from an estimated 3.4 months in 2015. This forecast compares unfavourably with Fitch's earlier forecast of 3.9 months for 2016 and is well below the 'BB' median of 4.2 months. While the authorities have undertaken certain measures to support external finances, including entering into bilateral swaps with other central banks, Fitch does not view this to be a sustainable way to improve the stability of the external finances.

- Foreign-currency debt portion remains high. Sri Lanka has also increased its issuance of foreign-currency debt, which Fitch estimates now makes up close to 46% of total public debt, up from nearly 42% at the end of 2014. This has increased vulnerability of Sri Lanka's public debt to a significant depreciation of the exchange rate, which would increase the debt burden in local currency terms.

- Favourable economic growth. Sri Lanka's macroeconomic performance remains stronger than some of its peers' in the 'B' and 'BB' range with real GDP growth for the five-year period ending 2015 averaging close to 6%, compared with the 'B' median of 4.6% and 'BB' median of 3.9%. Sri Lanka also continues to score highly, compared with the 'B' median, on basic human development indicators, such as education, health and literacy, which is indicated by its favourable ranking in the UN's Human Development Index. These relative structural strengths, combined with a clean external debt service record and smooth transition of power during the presidential and parliamentary elections in 2015 indicates a basic level of political stability, which supports the rating at 'B+'.

RATING SENSITIVITIES

The Negative Outlook reflects the following risk factors that could, individually or collectively, result in a downgrade of the ratings:

- A further increase in external vulnerability driven by a sustained decline in FX reserves reflecting, for instance, reduced international market access and/or a sudden reversal in portfolio inflows.

- A further deterioration in policy coherence and credibility that widens macroeconomic imbalances and/or heightens external vulnerabilities.

Rana wrote:ECONOMYNEXT - Fitch Ratings has downgraded Sri Lanka by one notch to 'B+' from 'BB-' with a negative outlook at the lower level, on falling foreign reserves, high debt maturities and lack of policy coherence.

Who ever here is still supporting and defending the "worst government in the Sri Lankan history ever" please look at the highlighted word especially.

Feel really sad about the country and where its economy is headed. (Some die hard yahapalana supporters may get angry with me. For your info. I was once a die hard UNP supporter but not anymore.)

Please everyone we have to do something here. Let's all remove our political glasses and will try something. Doing something is better than doing nothing. Let us all come together stand up against this disaster somehow.

I told this exactly a year ago and everyone went wild against me

Now I'm happy that these buggers are learning a bitter lesson by themselves. This government has completely destroyed the investor confidence and it's very difficult to repair now.

Forget about the investor confidence, just watch today's news. How many farmers are in the street now demanding a justifiable price for their harvest and subsidized fertilizers. These are worst indications showing the incapability of the yahapalanaya.

UNP was thinking that money will pour in from the US and European Union and they went against China. It's the biggest suicidal attempt by the Yahapalanaya. US and EU badly let SL down. The maximum that we can get from Yahapalanaya is the GSP plus and is it worth all the sacrifices that people going through

Where gone the shoe shine boys of Yahapalanaya

blacknights wrote:

Rana wrote:ECONOMYNEXT - Fitch Ratings has downgraded Sri Lanka by one notch to 'B+' from 'BB-' with a negative outlook at the lower level, on falling foreign reserves, high debt maturities and lack of policy coherence.

Who ever here is still supporting and defending the "worst government in the Sri Lankan history ever" please look at the highlighted word especially.

Feel really sad about the country and where its economy is headed. (Some die hard yahapalana supporters may get angry with me. For your info. I was once a die hard UNP supporter but not anymore.)

Please everyone we have to do something here. Let's all remove our political glasses and will try something. Doing something is better than doing nothing. Let us all come together stand up against this disaster somehow.

Yes, economy is not handled well now. We all know that.
(I am not please either)

But we should not overreact .


Why? Else we will all shoot our own foot and stock market


Sometime bad things need to happen , for the good things to happen ( gets identified or corrected)

Government also know they screwed up certain things ( though they may not admit it) but will need to take corrective path due to various pressures.

Be positive, something positive needs to happen. Maybe from China even

slstock wrote:Yes, economy is not handled well now. We all know that.
(I am not please either)  

But we should not  overreact .


Why?  Else we will all shoot our own foot and stock market


Sometime  bad things need to  happen , for  the good things to happen ( gets identified or corrected)

Government also  know they screwed up certain things ( though they may not  admit it)  but will  need to take corrective path due to various pressures.

Be positive, something positive needs to happen.  Maybe from China even

This is my idea as well. China may n should come to the rescue. The issue is "has our government really learned their mistakes?" If it is so this may have happened for the benefit for the country as SLS says.
Hoping for the best. Otherwise I don't know

I have mentioned many times about this situation... I have mentioned many times about China factor...

Surprisingly some good members here collectively used some Emotional Pictures like these....



If you have read my posts or comments , I would say I have never used above picture...

Being a writer , I analyze and write and never get hurt when others criticize my writing and let others criticize me...


Country need Scholars to come forward and educate the people...

I ve mentioned many times SL politics will change and Yahaplana is a selected mix of all failed figures (except SF who still can claim a victory he contributed) and this is the end of the era where people believed..." Politicians know everything"....

Now lets unite and find solutions for the problems we face.. There is ample of time left..

"Chanakya" political theorist and scholar from Taxila united India agains Alexander the Great...


Its time for us to find, create, nurture our own Chanakya and gain Economic Wealth & power for the nation again

1)

Some like Indians, Some like Chinese , Some like western people.

Too much China , too much India or too much USA is no good for sovereignty of the Sri Lanka . Best learn to be less dependant ( with time). But no government is doing so effective. When someone tried
once upon a time that too become an extreme experiment.

No foresight or balance with Sri Lankans. That is the problem.



2)

Does anyone know Kautilya ( also called Chanakya)

called Sri Lanka , PARASAMUDRA in his famous political/economic treatise ARTHASHASTHA?

Why so significant?
It was named so around 300 BC ( 2300 years ago)

PARA SAMUD(U)RA is one of the oldest names for Sri lanka

after
Lanka,
Tambapanni,
Sihaladeepa
and Taprobane

A piece of culture/history we should know before you to start the day.

Some interesting comments,  
According to Fitch review,  accumulated debt is one of  the main factor for the down grade. So some people think all the debt ( Some significant portion taken for non productive ventures) taken during the past one year ? Did the debt fueled projects contribute adequately to governments revenue over past 2 decades ?
Government revenue has been dropping over the years. Does it happen over night ?
Hasn't all the rating agencies warned on above issues since 2012 ?

http://www.dailymirror.lk/25724/worrying-fall-in-government-revenue

http://www.tamilguardian.com/article.asp?articleid=10710

Whatever happens,  present government should take all the responsibility and accountability to solve ailments. This is what they promised in last elections and after wards.

ECONOMYNEXT - Sri Lanka's Finance Minister and Central Bank Governor has dismissed a rating and outlook downgrade by Fitch deeper into junk status, saying it was an isolated action by one agency and markets had already factored in the bad news.

Fitch Ratings Tuesday downgraded Sri Lanka's credit from BB-, three levels below investment grade to 'B+' or four levels inside 'junk bond' status. The outlook was also downgraded to 'negative' at the lower level.

"That’s only one institution," Finance Minister Ravi Karunanayake told reporters in Colombo.

"These are only perceptions of certain institutions."

Central Bank Governor Arjuna Mahendran who was at a joint press conference said Moody's, a rival agency, had 'put out a positive report,' and bond yields had gone down 50 basis points recently.

Moody's already has a 'B1/stable' rating on Sri Lanka and said on February 29 that external pressure were 'credit negative'.

Fitch said there was a weakening of policy coherence that was generating foreign reserve losses with debt repayments looming ahead.

"The market has already factored in the information – they are not adding anything we did not know," Mahendran said.

He said the downgrade would not impact ongoing talks with the International Monetary Fund to strike a deal to fix the country's balance of payments trouble.

Sri Lanka's budget deteriorated in January 2015, with a sharp spike in state salaries and subsidies and the central bank compounded the problem by cutting rates in April and started monetizing debt (printing money) to finance the deficit, generating balance of payments pressure.

Domestic analysts and economists warned that Sri Lanka was heading in to balance of payments trouble almost a year earlier, but rating agencies and the IMF was more sanguine which may have also contributed the lack of urgency to fix imbalances that were building up.

An attempted float of the currency in September failed as there was no rate hike to fix excessive central bank re-financed credit growth and debt monetization continued unabated.

adaderana biz
ඊයේ (29) දිනයේ දී ෆිච් රේටිංග්ස් විසින් නිකුත් කරන ලද නවතම ශ්‍රේණිගත කිරීම අනුව ශ්‍රී ලංකාව BB- සිට B+ දක්වා පහළ දැමීම සාමාන්‍ය සිදුවීමක් බව කොළඹ කොටස් වෙළෙඳපොළ සභාපති වජිර කුලතිලක මහතා පැවසීය. ඔහු මේ බව සඳහන් කළ අද දෙරණ Biz කළ විමසීමකට ප්‍රතිචාර දක්වමිනි.

මෙහිදී අදහස් දක්වමින් වජිර කුලතිලක මහතා මෙසේ පැවසීය. “ආරම්භයේ දී තියෙන ප්‍රතික්‍රියාව ඕනෑවට වඩා සිදුවෙන්න පුළුවන්. මෙමගින් යම්කිසි බලපෑමක් වෙනවා. කාටවත් ඒක නැහැ කියලා කියන්න බැහැ. නමුත් එම බලපෑම කියන තරම් විශාල දෙයක් නොවෙයි. ශ්‍රේණිගත කිරීම්වල එක් පියවරක් උඩට හෝ පහළට යාම සාමාන්‍යයෙන් ලෝකයේ සිදුවෙන දෙයක්. “

මේ සම්බන්ධයෙන් වැඩිදුරටත් අදහස් දක්වමින් කොළඹ කොටස් වෙළෙඳපොළ සභාපතිවරයා කියා සිටියේ ඇමරිකා එක්සත් ජනපදය පවා මෙයාකාරයෙන් ශ්‍රේණිගත කිරීම් හි පහළට වැටී තිබෙන අවස්ථා තිබෙන බවයි.

Interest rates are more than 2 year high.
Stock market is more than 2 year low.

http://www.economynext.com/Sri_Lankan_shares_close_near_2_yr_lows_on_ratings_downgrade-3-4387-3.html

Mar 02, 2016 (LBO) – Fitch Ratings has downgraded the Issuer Default Ratings of two state banks and one finance company, a statement said.

Accordingly, Bank of Ceylon and National Savings Bank has been downgraded to ‘B+’ from ‘BB-‘ and People’s Leasing & Finance to ‘B’ from ‘B+’. The ratings of DFCC Bank were affirmed at ‘B+’.

It has also downgraded the insurer financial strength rating of Sri Lanka Insurance Corporation to ‘B+’ from ‘BB-‘.

The outlooks on all the ratings have been set to negative to reflect the negative outlook on the sovereign.

Fitch took the rating actions after it downgraded the Sri Lankan sovereign to ‘B+’ from ‘BB-‘ and assigned a Negative Outlook on 29 February 2016.

Fitch has also assigned Recovery Ratings of ‘RR4′ to the US dollar senior unsecured notes issued by BOC and NSB to reflect average recovery prospects.

At the same time Fitch affirmed the Recovery Rating on DFCC’s US dollar senior unsecured notes at ‘RR4′.

The National Ratings of BOC, NSB, DFCC and PLC have not been reviewed at this time.

“Fitch has maintained a stable sector outlook for the Sri Lankan banking sector for 2016 as we do not expect the sector’s credit profile to deteriorate materially even though operating conditions could become more challenging,” the agency said.

“The operating environment remains a key rating driver for the Sri Lankan banking sector given its potential volatility.” Fitch Ratings said.

Earlier in the day, Fitch downgraded SLT’s long term foreign and local currency issuer default ratings to ‘B+ from ‘BB-‘ and SriLankan Airlines’s US dollar-denominated government-guaranteed bonds to ‘B+’ from ‘BB-‘.